The regulator wants to see evidence that informed decisions are being made when it comes to defined benefit transfer advice, experts have said.
Tim Harries, head of risk governance & compliance at WPS Advisory, believes the Financial Conduct Authority is looking for adviser firms to demonstrate the intent to do the right thing by their clients.
“We think that means the FCA wants to see evidence that consumers make informed decisions that reflect their values, their objectives, needs and wants, presented as part of a retirement plan the consumer understands because they created it,” he said.
“That includes understanding the risks and how to mitigate and manage them.”
Mr Harries said he believed the regulator would also move to focus on charging structures as this will ultimately lead to better outcomes for consumers following on from its contingent charging ban, which comes into force from October.
“We expect the FCA to focus on ongoing charges and the consistency of the advice post retirement or pension transfer,” Mr Harries said.
“Is a consistent plan being followed? Are services appropriate to the fees charged and the client’s needs, rather than a blanket high charged environment? Does the plan reflect changes in client circumstances or adviser earning potential?
“Churning is the word no one wants to hear. If there is evidence of this in the future, then the industry will continue to have fundamental issues to address, undermining the very concept of professionalism,” he added.
Dominic Murray, IFA at Cameron James, agreed that the regulator could adopt an increased focus on fees, adding that it will look into the “fairness” of these charges.
Mr Murray said: “ I think the FCA's ultimate goal for the DB transfer advice market is protecting consumers and ensuring individuals with DB pensions receive thorough, accurate and independent advice.
“It wishes to avoid DB pension holders making ill-advised transfers based upon advice that is not aligned with their best interests.”
FCA intervention
Last year the regulator published the results of its last survey of the DB market, between April 2015 and September 2018, which concluded that too much advice was "still not of an acceptable standard".
Data obtained through a Freedom of Information request to the FCA showed the number of DB scheme members advised to transfer out has risen for each of the last three years, increasing more than threefold since 2015/16.
It revealed the number of DB members recommended to transfer out rose 13 per cent to hit 70,761 for the year ended September 2018, up from 62,694 the year before.
On the other hand, over the same period 31,631 members were advised not to transfer out, up 33 per cent from 26,860 the previous year.
Of the 102,392 DB members who received transfer advice in 2017/18, 69 per cent were advised to transfer out.
The total value of DB pension schemes where transfer advice had been provided increased from £2.93bn in 2015 to £36bn in 2017/18.
The average value of DB schemes where transfer advice had been provided dropped 9.7 per cent in 2017/18, falling to £351,584, down from £389,545 the previous year.
Last month, the FCA sent out another data request on pension transfer advice provided between October 2018 and March 2020.
One of the questions asked advisers how much revenue they received from advising insistent clients on pensions transfers and conversions, including advice on any investment proceeds and implementation charges.
Regulatory expert Rory Percival believes FCA’s increased focus in this area has helped to drive standards up but they are just “not to an adequate level yet”.
But he thinks the issue is widespread rather than down to a handful of unscrupulous firms.
Mr Percival said: “Most advisers say that the problems in the market are with a few dodgy firms. This is not the case, the issue is much more widespread than this and the FCA have stated this.
“However, while firms think the problem is elsewhere, they are unlikely to be making changes to their own practices.”
But Simon Harrington, senior policy adviser at adviser trade body Pimfa, argued it is wrong to categorise the pension transfer market as being “rife with poor practice, crying out for intervention”.
He said: “The vast majority of firms have been prudent and high performing throughout all of this. Clearly there are firms who sit on the other side of this and you would hope that they have either bucked up their ideas or left the market altogether.
“Of course, there’s an interesting group who probably sit in the middle here – firms that wanted to do the right thing and maybe in some instances weren’t.”
But he criticised the FCA for not publishing its recent guidance, which set out which processes advisers must put in place to deliver suitable DB transfer advice, sooner.
Mr Harrington said: “One of the interesting things about the FCA’s recent guidance consultation in my view is that it’s the sort of thing that could have been published 5 years ago and given firms who sit in this group much needed guidance.
“The FCA have been explicit with the fact that in their view there are currently too many people transferring out their guaranteed benefits. You have to infer from that, that their goal is to shrink the market and reduce the number of people who are transferring out from guaranteed benefits.”
In June, the regulator revealed its intervention had led to more than 700 advice firms relinquishing their defined benefit transfer permissions, with the City watchdog currently pursuing 30 enforcement investigations following concerns arising from its transfer work.
It also confirmed it will ban contingent charging in most circumstances, with only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, being exempt.
amy.austin@ft.com
Jack Barnett is a freelance writer
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